Suppose $A$ is a projection. What are the conditions that $A$ needs to satisfy for
$\|Ax\|_2 \leq \|x\|_2$ to hold.
Two possibilities I can see are:
$A$ is an orthogonal projection.
The largest singular value of $A$ is less than or equal to 1.
Are there any other specific conditions on $A$ which satisfy this?
Your statement implies that the space must be contracting. Since $A$ can be decomposed via SVD, then the only necessary condition for this, I believe, is that the largest singular value be less than or equal to 1.